BCS Corporation is a calendar-year, accrual-method taxpayer. BCS was formed and started its business activities on January 1 of this year. It reported the following information for the year. Indicate BCS’s deductible amount for this year in each of the following alternative scenarios.

BCS provides two-year warranties on products it sells to customers. For its current-year sales, BCS estimated and accrued $200,000 in warranty expense for financial accounting purposes. During this year, BCS spent $30,000 repairing its product under the warranty.

a)

BCS accrued an expense of $50,000 for amounts it anticipated it would be required to pay under the workers’ compensation act. During the year, BCS actually paid $10,000 for workers’ compensation–related liabilities.

b)

In June of this year, a display of BCS’s product located in its showroom fell and injured a customer. The customer sued BCS for $500,000. The case is scheduled to go to trial next year. BCS anticipates that it will lose the case and this year accrued a $500,000 expense on its financial statements.

c)

Assume the same facts as in

(c) except that BCS was required to pay $500,000 to a court-appointed escrow fund this year. If BCS loses the case next year, the money from the escrow fund will be transferred to the customer suing BCS.

d)

On December 1 of this year, BCS acquired equipment from Equip Company. As part of the purchase, BCS signed a separate contract that provided that Equip would warranty the equipment for two years (starting on December 1 of this year). The extra cost of the warranty was

$12,000, which BCS finally paid to Equip in January of next year.